Sunday, February 3, 2013

NEKRITZ-BISS (CROSS) BILL IS the Civic Committee of the Commercial Club of Chicago’s earlier proposal, and it is UNCONSTITUTIONAL

“…The State Cannot Require Current Employees to Pay Higher Contribution Rates for the Same Level of Pension Benefits

“First, the proposal [or Nekritz-Biss/Civic Committee’s bill] is contrary to the [Pension] Clause’s plain language and common meaning. The Clause makes an employee’s membership in a public pension system an 'enforceable contractual relationship' and prohibits the 'benefits of' such membership from being diminished or impaired.(592)  The term 'benefit' refers not only to the specific annuity payments a public employee is eligible to receive, but also other terms of membership that advantage the public employee.(593)

“When a public employee joins a pension system, the employee agrees, per the Pension Code, to contribute to the system a specific percentage of salary and work a certain number of years to ultimately receive a pension upon retirement. The employee’s contribution rate, in other words, is a term of that enforceable contractual relationship and a benefit because the employee need only pay that rate to receive a pension. In contract terms, the employee’s contribution rate is the 'consideration' that supports the unilateral contract between the employee and State. In short, requiring current employees to pay more for the same ultimate pension payment is tantamount to a bank changing the minimum payment required under a loan without a contractual right to do so. Since a bank could not take such unilateral action, neither may the State.

“Second, the proposal [or Nekritz-Biss/Civic Committee’s bill] is inconsistent with the drafters’ original intent based on the Clause’s Convention history. Both sponsors of the Clause articulated that the provision safeguarded those pension rights existing at the time a public employee joined a pension system. Delegate [Henry] Green aptly explained: 'What we are trying to merely say is that if you mandate the public employees in the state of Illinois to put in their 5 percent or 8 percent or whatever it may be monthly, and you say when you employ these people, ‘Now if you do this, when you reach sixty-five, you will receive $287 a month,’ that is in fact, is what you will get.'(594) Delegate [Helen] Kinney similarly stated that the Clause was intended 'to guarantee that people will have the rights that were in force at the time they entered into the agreement to become an employee.'(595)

“In addition, the drafters specifically rejected during the Convention two requests from the Pension Laws Commission to insert language or read a floor statement allowing the General Assembly to unilaterally change employee contribution rates.(596) Also, the provision was described to voters as protecting pension benefit rights and granting public employees a constitutional right to their 'full pension benefits.'(597) As a consequence, [Nekritz-Biss/Civic Committee’s bill or] proposal deviates from the framers’ intent and must be rejected.

“Third, Illinois court decisions offer the proposal no legitimate assistance. As discussed, Illinois courts hold that the Clause entitles public employees to have their pension benefit rights determined in accordance with the terms of the Pension Code in effect when they entered the pension system.(598) In other words, the Pension Code existing at the time 'is deemed to be part of the contract as though it was expressly referred to or incorporated into it.'(599) These pension rights, in turn, 'vest' when the employee begins making contributions to the system.(600) Thus, the Clause entitles an employee to receive a pension based on those relevant sections of the Pension Code.(601)

“As a result, the legislature could not unilaterally increase the contributions rates of current employees because it adversely changes the terms of the original contract by requiring employees to essentially pay additional consideration for the same pension amount. Put differently, the State is merely offering current employees what it is already required to do—pay them a pension based on the terms in place when they joined the system. Illinois courts have long-held that one party cannot modify a contract merely by offering to do something that the party is already legally obligated to perform.(602)

“As the Oregon Supreme Court stated in a similar context, '[o]nce offered and accepted, a pension promise made by the state is not a mirage (something seen in the distance that disappears before the employee reaches retirement).'(603) The court continued that to allow the legislature to unilaterally increase a current employee’s cost of participation in a pension plan 'would serve notice to any person who might consider embarking on a career in public service that the state’s promises could well prove worthless, even after the employees had given consideration for those promises.'(604)

“To be sure, the [Civic Committee of the Commercial] Club [of Chicago/Sidley Austin] would most likely argue that providing current employees with the option to join a plan to receive lower pension benefits or a 401(k)-style plan constitutes a legal consideration. Even if that were true,(605) current employees, as discussed, must still have the power to freely accept or reject the offer and remain in their current plan under its original terms.(606) Otherwise, the proposal is tantamount to legislative coercion. In addition, the proposal cannot be squared with the Illinois Supreme Court’s Felt [v. Board of Trustees of the Judges Retirement System, pages 32-34] decision where the court rejected the Attorney General’s request that the Pension Clause be construed according to California’s 'limited vesting' approach.(607) That approach permits the legislature to unilaterally reduce the benefits of current employees so long as they receive some kind of off-setting advantage.(608) The Felt court explained, per Kraus [v. Board of Trustees of the Police Pension Fund of the Village of Niles, pages 28-32], that in 'order to accept the defendants’ argument we would have to ignore the plain language of the Constitution of Illinois, reject the New York decisions on the constitutional provision which was the model for section 5 of article XIII, and overrule this court’s decision in Bardens.'(609)

“Fourth, [Nekritz-Biss/Civic Committee’s bill or] proposal finds no support in the Appellate Court’s Kraus decision. In Kraus, the court stated in dicta that '[i]t is also possible, although we do not decide the question, that an increase in the contribution rates of some employees to equalize their contributions with those of others would not be prohibited.'(610) Kraus cited a Michigan Supreme Court advisory opinion for this proposition.(611) That opinion involved a legislative proposal to unilaterally increase the contribution rates of certain teachers from 3% to 5% (an $84 annual increase) to bring those rates in line with other teachers.(612) The Michigan court concluded that change was permissible because that State’s constitution only protected 'accrued financial benefits,' and because the convention debates contemplated that the legislature could 'attach new conditions for earning financial benefits which have not yet been accrued.'(613)

“As discussed above, both the Clause’s plain language and Convention history manifest an intent that is at odds with what the Michigan Constitution would allow. Indeed, the Clause protects the 'benefits of' pension system members, not just 'accrued financial benefits' as under the Michigan Constitution. The Kraus court itself found this distinction important in arriving at its conclusion that the legislature may not unilaterally change the pension benefit rights of current employees.(614) The Illinois Supreme Court agreed in Felt, and used this analysis to reject the Attorney General’s claim that the legislature retained a reserved power under the Clause to adversely alter the pension rights of current employees.(615)

“Also, [Nekritz-Biss/Civic Committee’s bill or] proposal neither seeks a nominal increase in employee contribution rates, nor attempts to equalize contribution rates with those of other employees. Rather, the proposal makes it cost prohibitive for current employees to retain their existing plan. Even under these circumstances, the Michigan Attorney General would find its Supreme Court’s decision inapposite. In 1985, the Michigan Attorney General opined that legislation substantially increasing current employee contributions rates—a $1200 annual increase—without any commensurate advantage to employees would run afoul of the Michigan Constitution.(616) For these reasons, Kraus is unpersuasive and does not advance the... proposal.

“Finally, two law firms (DLA Piper and Jenner & Block) have similarly concluded in opinions provided, respectively, to the Illinois Education Association and the Teachers Retirement System that a unilateral increase in employee contributions without a simultaneous enhancement in benefits would violate the Pension Clause.(617) DLA Piper reached this conclusion in April 2010, while Jenner & Block did so in February 2005 well before it signed onto Sidley’s opinion.(618)…”

AN ANALYSIS OF ARTICLE XIII, SECTION 5 OF THE ILLINOIS CONSTITUTION by Eric M. Madiar, Chief Legal Counsel to Illinois Senate President John J. Cullerton and Parliamentarian of the Illinois Senate, pages 71-74.

592 ILL. CONST. 1970, art. XIII, § 5.
593 See supra note 20 and accompanying text.
594 See supra note 172 quoting IV Proceedings 2930, and accompanying text.
595 See supra note 176 quoting IV Proceedings 2930-31, and accompanying text. See IV Proceedings 2929 (stating that the Clause gives public employees “a basic protection against abolishing their rights completely or changing the terms of their rights after they have embarked upon the employment—to lessen them.”).
596 See supra notes 180-192 and accompanying text.
597 See supra notes 196-202 and accompanying text.
598 See supra notes 220, 277-85, 307, 327, 428, 437, 443-45, 447-48, 465, 468-69 and accompanying text.
599 Schroeder, 219 Ill. App. 3d at 700, 579 N.E.2d at 999-1000.
600 Id. at 700, 579 N.E,2d at 999; Kraus, 72 Ill. App. 3d at 844-45, 390 N.E.2d at 1289.
601 See e.g., Kraus, 72 Ill. App. 3d at 844-45, 390 N.E.2d at 1289; Redding, 115 Ill. App. 3d  at 245, 450 N.E.2d at 765; DiFalco, 122 Ill. 2d at 26, 521 N.E.2d at 448 (the “contractual relationship” under the Pension Clause “is governed by the actual terms of the Pension Code at the time the employee becomes a member of the pension system. Therefore, in determining plaintiff’s rights under the Pension Code, we must look to the language of the relevant statute in effect in 1982 when plaintiff began paying into the fund.”).
602 Smith v. Gray, 316 Ill. 488, 496, 147 N.E. 459 (1925) (“It is the law that a promise to do that which the promisor is already bound to do is not sufficient consideration for such an agreement.”). Accord Watkins v. GMAC Financial Services, 337 Ill. App. 3d 58, 64, 785 N.E.2d at 44-45 (1st Dist. 2003) (“A contract modification must satisfy the same criteria required for a valid contract: offer, acceptance, and consideration. Preexisting obligations are not sufficient consideration.”).
603 Oregon State Police Officers’ Ass’n v. State, 918 P.2d 765, 775-76 (Or. 1996)
604 Id.
605 In Miller v. Retirement Board of Policemen’s Annuity, the Appellate Court considered a factually analogous circumstance where amendments to the Pension Code had the effect of increasing employee pension contributions and reducing pension payment amounts. 329 Ill. App. 3d 589, 594, 771 N.E.2d 431, 435 (1st Dist. 2002). The court concluded that applying the amendments to the plaintiffs “amounted to a change in the terms of their contract with the pension system and directly diminished their benefits under the contract” in violation of the Clause. Id. at 600, 771 N.E.2d at 440. The Club’s proposal is little different than what took place in Miller because current employees are required to either pay more for what they are already entitled, opt into a plan providing lower pension payments for potentially the same or higher employee contributions or opt into a 401(k) style plan that does not provide a guaranteed defined benefit.
606 See supra notes 491, 493-95, 501, 513-14, 515-528 and accompanying text.
607 See supra notes at 265-67, and 458-467 and accompanying text.
608 See supra notes 458-67 and accompanying text.
609 Felt v. Bd. Trustees of the Judges Retirement Sys., 107 Ill. 2d 158, 167-68, 481 N.E.2d 698, 702 (1985).
610 Kraus v. Bd. of Trustees, 72 Ill. App. 3d 883, 849, 390 N.E.2d 1281, 1293 (1st Dist. 1979).
611 Id.
612 In re Enrolled Senate Bill 1269, 389 Mich. 659 (1973).
613 Id. at 663
614 Kraus, 72 Ill. App. 3d at 847, 390 N.E.2d at 1291.
615 See supra note 267 (citing Felt, 107 Ill. 2d at 167-68, 481 N.E.2d at 702).
616 1985-86 Mich. Att’y Gen. Op. 67, 1985 WL 200597 at *3-5.
617 See Memorandum from William Campbell et al., DLA Piper to the Illinois Education Association, Constitutionality of Pension “Reform” Proposals (Apr. 19, 2010) (opining that the Club’s initial proposal to unilaterally reduce existing employee pension benefits or increase employee contribution rates without a corresponding increase in pension benefits would violate the Pension Clause; also rejected Sidley’s “earned right” concept); Memorandum from William Heinz, Jenner & Block, to the Teachers Retirement System, Constitutionality of Potential Increases to TRS Members’ Contributions at 2, 8 (Feb. 3, 2005) (“we believe that it is more likely than not that legislation increasing the teachers’ contributions to the TRS without providing any corresponding benefit to the teachers would be found to be unconstitutional because it directly impairs the teachers’ existing contract rights in their pensions”; further opining that “[u]nlike situations that have been held to be an indirect impairment such as reduction in work hours or salary or reduction in the mandatory retirement age that have only incidentally related to the pension benefits, increasing the required contribution by plan members directly impairs the benefits that the plan members ultimately receive. In effect, the plan members are contributing more money to receive the same amount of benefit under the pension plan.”).
618 See supra note 347.

2 comments:

  1. It seems so clearly unconstitutional that one should ask if it is intended to fail, which is quite possible. There's also the guaranty provision, which is so vague, horribly written and miguided that it's almost certain to either be stricken or kill the entire proposal on its own. I had an interesting response when I asked a top state senator what he though of the Nekritz-Biss proposal. He said "probably a smart political thing for the sponsors, but nothing much will come of it." Seems right to me. The sponsors are praised for "doing something" and bipartisanship, keeping them out of most of the public's ire. It would barely dent the full scope of the pension problem anyway.

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  2. I've read Madiar's paper often and thoroughly to understand this issue. I find great comfort in the protection of our pensions through the Pension Clause. I have asked legislators repeatedly why they would vote for something so blatantly unconstitutional. I believe this is the major reason why all attempts to date have failed. I think they are afraid of the courts to decide as well.

    Since so much attention, time, and money has been spent "chasing this windmill," I wonder what State business is being neglected and costing the State additional money. Why won't the legislators wake up and realize that the issue isn't our pensions but a problem of revenue. Perhaps, the Civic Committee thought it could swoop in and steal our pensions in 2010 not realizing that teachers and other pubic servants are pretty intelligent people. Now that this issue is out in the open, I suppose that if the legislators actually agree that it's a revenue problem and not one of our benefits, they are conceding their complete failure of the leaders of this State. It was so much easier to blame us!

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